Authored by: Hugo Salinas Price via Plata
The President of Mexico Lopez Portillo ordered liberty Plata (Liberty Ounce) in 1976. Plata's weight was to be 31.1 grams, the weight of a Troy ounce of silver. This coin was to bear no engraved monetary value.
President Lopez Portillo intended to provide Mexicans with a solid, traditional monetary instrument that would enjoy an official financial quote, to be determined daily by Mexico's Central Bank.
Unfortunately, after a few months of its existence as money - during which the ounce enjoyed legal monetary quotes - the financial quote for the Liberty Plata had to be abandoned.
This became necessary because the Central Bank issued daily quotes of the monetary value of the Liberty Plata, based on the international prices of silver, and thus the monetary values of the Ounce went up or down daily; the result was that there arose lawsuits amongst investors, regarding the monetary value of related contracts involving the Liberty Ounce.
However, since its creation and up to the present, the Central Bank of Mexico has continued to mint the Liberty Plata, whose value fluctuates every day; Mexicans have accumulated Liberty Plata as savings through the years, and they can be calculated to amount to about 25 million ounces.
These plata ounces remain in possession of Mexicans, as savings that afford some protection against the Mexican peso's depreciation, caused by the daily increase in the amount of Mexican monetary bills and digits.
Savers are holding on to these 25 million coins, notwithstanding the inconvenience of owning them, which consists of the critical difference between the prices paid for them when purchased and the prices that savers receive when they wish to sell their ounces in exchange for paper bills or monetary digits.
The Liberty Plata the well-intentioned monetization and the conversion into money, which President Lopez Portillo attempted to carry out with the Liberty Ounce - failed, because it did not take into account that the monetary value of a metallic coin, whose value resides in its content of silver, cannot be based on fluctuating market values of silver bullion.
A monetary value must be attributed to the coin employing an official quote that will be higher than silver bullion's market value. This quote must remain firm against daily fluctuations in the value of silver bullion.
When the Liberty Plata is turned into money, its monetary value will not fall with falls in the price of silver bullion; its monetary value will only increase in case of a rise in silver bullion price, sufficient to merit a higher monetary value. A series of substantial upgrades in silver bullion price will cause a series of higher financial quotes for the Liberty Plata.
"Seigniorage" is the profit for the Central Bank when it assigns a monetary value to the silver coin, an economic value which will be superior to the silver bullion value of one ounce; in the present case, it would amount to 20%. The seigniorage is protected against minor fluctuations in the price of silver bullion by a "cushion," which would elevate the monetary quote, which would yield a profit of 20%, to the nearest multiple of 20 pesos.
The monetization of the Liberty Plata silver ounce - the realization of the magnificent, humanistic measure which was proposed by none other than the President of Mexico, Jose Lopez Portillo, in 1981 - would bring with it numberless social benefits and historic consequences for Mexico, which we have mentioned in other places.
However, there would be one consequence of exceptional importance: millions of Mexicans would be deeply grateful to the Mexican Congress for monetizing the Liberty Plata, which Mexicans have been saving since 1981 and continue to purchase today, even though they are not money.
Should Congress approve the monetization of the Liberty Plata today, its monetary value would be 420 pesos. (At today´s peso/dollar rate of exchange, this would amount to $22). This value would rise with rises in the value of silver bullion but never diminish.
The Mexican Congress has the legal right to create this extraordinary gift for the Mexican People. By doing so, win the gratitude and political support of millions of fellow-citizens.
1. The application of a monetary quote to the Liberty Plata held by the public will not cost the Federal Budget one single cent, nor will it cost the Central Bank any expenditure - on the contrary, monetization means profits for the Central Bank.
2. Every one of the millions of Liberty Plata saved by the Mexican public since 1981 will instantly become money, for the amount of 420 pesos, at today's conditions. No one knows the exact number of ounces owned by the Mexican public, but a conservative estimate is 25 million.
A gift on the Mexican Congress part, for the Mexican people, for 25,000,000 ounces times 420 pesos each, means a grant of $10,500,000,000 (Ten billion, five hundred million Mexican pesos).
3. There would be no inflationary consequences as a result of this move, as would be the case with an outright gift of such an amount in paper or digital money because every one of these ounces will remain in the savings of the population: the coins may change hands, but they will invariably disappear into savings by the public. Thomas Gresham's famous "Law" makes this a certainty.
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